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14 June 2021

Tax Reform on the Horizon for Tech Giants

A major step towards a global tax reform took place last week in preparation for the G7 summit that took place between the 11th – 13th June. G7 ministers agreed on a 15% worldwide tax for giant tech companies such as Apple, Google, and Facebook. In addition to the global tax rate, these firms must pay taxes in the country where they generate revenue, and not in the location of their headquarters. The exact details of which companies are to be covered by the tax reform have not been completely decided. Nevertheless, US Treasury Secretary Janet Yellen stated Amazon and Facebook "would qualify by almost any definition” – just in case there were any concerns Amazon would fall out of jurisdiction with its sub 10% profit margins – a minimum requirement to come under the scope of the new tax laws.

The seven most advanced economies (Canada, France, Germany, Italy, Japan, the UK and the US) have agreed on the deal, but other major nations, such as China and Russia, will discuss the deal at the G20 meeting in July, before 139 other countries decide their stance. A tax reform of this kind has been needed for some time and although some shareholders may not be pleased to see corporate earnings taking the hit, it is a positive move towards tackling the shudderingly low tax payments hundred-billion Dollar businesses have pulled off in the past. At the time of writing, the share prices of the companies expected to be affected have all risen since the news was announced on Monday: Apple +0.15%, Facebook +0.83%, Alphabet +1.83%, and Amazon +4.94%.

Higher-than-expected inflation data also came out of the United States on Thursday, with headline consumer prices rising 5% year-on-year in May, the fastest pace since August 2008. Despite these being the highest inflation readings since just before the financial crisis, central banks continue to reiterate that the current rise in prices is due to temporary factors and raises no alarm bells for a shift in policy. The S&P 500 and Nasdaq both rose on the day, up + 0.27% and + 1.37% for the week respectively – while ten-year treasury bond yields took a beating, falling 17 basis points for the week to 1.44%.

On the other side of the Atlantic, UK retail sales heated up as Britons returned to restaurants and stores in May, ready to splash savings accumulated during months of lockdown measures. The British Retail Consortium stated the value of sales were 10% higher in May than in the same month of 2019, using 2019 as the base year due to the abnormality of 2020’s consumer market which would create a distorted view of the increase in sales to this year. It was a quiet week for the UK’s top 100 companies, with the UK’s leading index gaining just + 0.17% since last Monday.

Just weeks after being hailed for introducing the Growing British Brands Scheme, Morrisons CEO David Potts came under fire from shareholders over plans to award generous bonuses to bosses. At the company’s Annual General Meeting this week, over 70% of shareholder votes were cast against the firm's remuneration proposals which included paying Chief Executive David Potts a maximum £1.7m bonus despite large drops in profitability due to the pandemic. Morrisons stated it would now contact investors to make the case for remunerations once again, but it is likely to have a difficult time doing so with shareholder advisory groups such as Pirc urging investors to reject Morrisons' plans. The shareholder revolt was one of the highest on record and comes at a time when a number of other corporates are facing backlash from shareholders over pay, including Cineworld, Informa, and property group Savills.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Tax Reform on the Horizon for Tech Giants
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